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How do you improve the quality of hero's armor? From what Ive gathered, you can only upgrade the "look" of the armor by acquiring difficult to obtain dungeon objects and bringing them to a crafter. This doesnt improve their defense though, does it?
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There are challenge missions you can do to upgrade there armor's looks.
The only way to upgrade the armor is adding runes/insignia's that buff armor and dmg.
Read the Hero Armor page at GWW for full details.
Basically Nightfall and EotN have some challenge missions where an armor upgrade piece has a chance of dropping. Take that piece to a Hero Armor NPC and *poof* your hero has the upgraded armor skin. Otherwise put runes and insignias on their armor just as you would your own. One nice thing is that hero armor *cannot* be destroyed from salvaging to getting your mods back from heroes is guaranteed.